DAG as Blockchain 2.0

CryptAssist, the cryptocurrency exchange platform for decentralized storage, exchange and trading of value, is built on Directed Acyclic Graph (DAG) instead of Blockchain like any other existing cryptocurrencies that are developed. The idea of using DAGs was first introduced by ICO team from Iota publicly in 2015.

Directed acyclic graph (DAG) has recently gained huge popularity as a novel approach which can replace blockchain. One can distinguish among them interesting group of single-transaction DAGs which serve as a blockchain for such cryptocurrencies as Byteball and IOTA .

In such structure, every transaction is a node in the graph and in order to issue a new transaction, one must approve two (or more) other transactions in the graph. The approval is usually done by POW and the transaction done is being approved in the DAG by an edge outgoing from the issued transaction. Such constructed Directed Acyclic Graph (DAG)-based systems suffer from several inherent limitations:

A. No strong motivation for broadcasting the transactions

Each cryptocurrency works as a peer-to-peer network – when a new transaction appears, it is immediately broadcast to all the nodes. This requires a constant connectivity of the users. Such connectivity is easy to achieve when the miners are present – they must actively participate in the network to be eligible for their rewards. Without the miners no such motivation exists – the risk of being dropped by the neighbors does not seem to be a sufficient incentive to propagate the transactions.

B. Ease of 51% computing power attack

In order to prevent spam, every user must perform some Proof of Work before issuing a transaction – this is kind of transaction fee which is paid using users' computing power instead of paying a regular fee to the miners to have the work done. This Proof of Work cannot be too hard, because we do not want to wait long for every transaction approval (especially if we plan to run the cryptocurrency software on mobile devices or, e.g., on a smart fridge, which is the case of IoT). This makes a 51% attack relatively easy, especially in the 2 periods of lower activity of the honest users. IOTA currently runs on special centrally-driven nodes called co-ordinators to save it from such attacks.

C.Lack of computing power for smart contracts

The concept of local PoW makes it practically impossible to apply smart contracts on such DAGs. Even if the hardness of Proof of work would be set to final result in an acceptable verifying time for standard transactions, this idea does not allow to use the same system for running smart contracts (which can run much longer). In order to have smart contracts, there must be miners in the network who will run their code.

D.Tiny storage for data The single-transaction

DAG structure was designed for managing simple, small-sized transactions. This idea is not easily scalable to store large amounts of data, since one cannot force end-devices (again, think of a smart fridge) to store large files.

E. Risk of potential attacks

Since blockchain-less DAGs have not been deployed on a large scale and they lack strong mathematical foundations, we must be cautious about their resistance to other potential attacks. In particular, we have discovered a Double-parasite chain attack on the tangle, which, to the best of our knowledge, cannot be prevented from using current implementation of the tangle (the transaction DAG of IOTA cryptocurrency).

In CryptAssist the Blockchain combination with DAG still originates from the idea of side-chains, which means different types of transactions are running on different chains at the same time. The DAG of blocks still relies on the concept of blocks. With Bitcoin, the block creation speed is a bottleneck and it takes 10 minutes to generate a new block. With DAG, Cryptassist’s block time will be 30 seconds.

Current transaction times are as follows:

Bitcoin 7 – 8 transactions per second
Ethereum 20 transactions per second
IOTA 500 – 800 transactions per second
Paypal 193 transactions per second

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